Juniper's Growth Driven by Network Traffic

BOSTON ( TheStreet Ratings) -- Juniper Networks ( JNPR) is scheduled to report quarterly earnings after the market close on Tuesday. Analysts are expecting the networking equipment provider to benefit from continued demand for routing equipment and a recent entry into the enterprise market.

Analysts are expecting Juniper to report a second-quarter profit of 34 cents a share, compared with a profit of 24 cents in the year-ago quarter. Revenue is estimated to increase to $1.15 billion from $978 million a year ago, according to a poll of analysts by Thomson Reuters. The company should continue to gain ground due to solid demand for its networking products- driven by growing network traffic.

The following is taken from a first-quarter report published by TheStreet Ratings, an independent-research unit of TheStreet that uses a quantitative model to evaluate stocks.

Juniper Networks' earnings per share declined by 20% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Juniper increased its bottom line by earning $1.14 versus 22 cents in the prior year. This year, the market expects an improvement in earnings ($1.51 versus $1.14).

We rate Juniper a buy. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. Our model has a price target of $41 on shares of Juniper, offering the potential for 32% upside from current levels.

The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Net operating cash flow has significantly increased by 171% to $239.65 million when compared to the same quarter last year. In addition, Juniper has also vastly surpassed the industry average cash flow growth rate.

>>For upcoming earnings and estimates, see our Earnings Calendar.

JNPR's debt-to-equity ratio is very low at 0.14 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 2.78, which clearly demonstrates the ability to cover short-term cash needs.

From a valuation perspective, Juniper's current price-to-earnings ratio indicates a discount compared to an average of 31.04 for the Communications Equipment industry and a significant premium compared to the S&P 500 average of 16.54. To use another comparison, its price-to-book ratio of 2.42 indicates valuation on par with the S&P 500 average of 2.23 and a discount versus the industry average of 2.92. The current price-to-sales ratio is well above the S&P 500 average and above the industry average, indicating a premium.

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Equity research manager Chris Stuart, CFA, joined TheStreet Ratings after working as a senior investment analyst with Merrill Lynch covering small-cap equity and alternative investment strategies. Prior to that, Stuart worked for One Beacon Insurance as an actuarial analyst and at H&R Block as a financial adviser.

Stuart earned his bachelor's degree in finance from the University of Massachusetts, Amherst. He holds a Chartered Financial Analyst (CFA) designation and is a member of the Boston Security Analysts Society (BSAS) and the CFA Institute.